668 F.

2d 142
32 UCC Rep.Serv. 1331

Edward M. STAFFORD and Peggie Ann Stafford, PlaintiffsAppellants,

v.
INTERNATIONAL HARVESTER COMPANY and Eastco
Truck Sales,
Inc., Defendants-Appellees.
No. 92, Docket 81-7198.

United States Court of Appeals,

Second Circuit.
Argued Sept. 16, 1981.
Decided Dec. 31, 1981.

Henry R. Simon, New York City (Meryl Shapiro, New York City, of
counsel), for plaintiffs-appellants Stafford.
John A. Schultz, New York City (MacCarthy, Schultz & Mulholland,
Ellin Mulholland and David B. Hamm, New York City, of counsel), for
defendant-appellee International Harvester Co.
Arthur N. Seiff, New York City (Corcoran, Amabile & Cowin, Charles F.
McGuire, Brooklyn, N. Y., of counsel), for defendant-appellee Eastco
Truck Sales, Inc.
Before OAKES and MESKILL, Circuit Judges, and BLUMENFELD,
District Judge.*
BLUMENFELD, District Judge:
This case involves an action by appellant Edward M. Stafford for damages
resulting from injuries to person and property sustained in an accident
caused by an alleged defect in a tractor truck manufactured by the
appellee International Harvester Company (International Harvester) and
repaired by the appellee Eastco Truck Sales, Inc. (Eastco). Appellant
Peggie Ann Stafford, the wife of Edward Stafford, seeks damages for the

loss of the services of her husband. The action is based on theories of

negligence, breach of implied and express warranties and strict liability.
Appellants are residents of New Jersey, appellee International Harvester is
a Delaware corporation not having its principal place of business in New
York and appellee Eastco is a New York corporation with its principal
place of business in New York. Federal jurisdiction is based on diversity
of citizenship, 28 U.S.C. 1332.
On August 15, 1974, Edward Stafford purchased secondhand a tractor
truck manufactured by International Harvester. The appellants allege that
this truck was under recall by the manufacturer because of a possible
defect in the steering mechanism. On or about November 5, 1974, while
the appellant was operating the truck in New York, the steering
mechanism failed causing a collision. The truck was subsequently towed
to Eastco's place of business and repaired. Eastco is alleged to be a
franchisee of International Harvester and to have known that the truck was
under recall at the time it replaced the steering mechanism. On December
16, 1974, the steering mechanism again failed causing an accident in
Pennsylvania in which the appellant sustained severe and permanent
personal injuries. This second accident is the basis of this litigation.
The district court dismissed the appellants' complaint against Eastco
insofar as it was grounded on breach of warranty and strict liability
because it found that the transaction between Eastco and the appellant was
predominately a service contract for repairs and not a sale of goods. Judge
Mishler concluded that under the laws of both New York and
Pennsylvania a transaction cannot be the basis of a warranty or strict
liability cause of action where services predominate and the sale of goods
is only incidental to the repair or other service.
The district court also granted both defendants' motions for summary
judgment on the ground that the lawsuit was untimely, having been
commenced more than two years after the accident occurred in
Pennsylvania. The court concluded that a two-year limitations period,
relating to actions for injury to persons or property in Pennsylvania, Act of
1895, June 24, P.L. 236, 2 and Act of 1713, March 27, 1 Sm.L. 76, 1,
42 Pa.Cons.Stat.Ann. 5524, was applicable to this cause of action rather
than the three-year period which would apply under the law of New York,
N.Y.C.P.L.R. 214(4), (5).
The Pennsylvania statute of limitations was applied because the New
York "borrowing statute" provides that if a cause of action accrues outside
New York in favor of a non-resident, a New York court will apply the

statute of limitations of the state where the cause of action accrued if to do

so would bar the action. N.Y.C.P.L.R. 202.1 Judge Mishler concluded
that the cause of action accrued in Pennsylvania because, for purposes of
the borrowing statute, a "place of injury" test should determine where the
cause of action accrued. He rejected the appellants' argument that the
modern line of New York cases, applying a "center of gravity" approach
to determine what substantive law applies in a choice of law situation,
should be applied to determine where a cause of action accrues for
purposes of New York's borrowing statute. Since the Pennsylvania
limitations period was shorter than the New York period and would bar
the actions, Judge Mishler held that it governed under the borrowing
statute and barred all of the appellants' causes of action.
Judge Mishler also concluded that Pennsylvania's tolling statute was of no
benefit to the appellants because, at the time this action came into being,
neither defendant was subject to the tolling provision. In pertinent part
Pennsylvania's tolling statute reads:
the defendant ... who shall have become non-resident of the state after said
cause of action shall have arisen, shall not have the benefit of any statute
of this state for the limitations of actions during the period of such
residence without the state.
12 Pa.Cons.Stat.Ann. 40, 1895, May 22, P.L. 112, 1 (Repealed 1978,
April 28, P.L. 202, No. 53, 2(a), effective June 27, 1978). Since it is
conceded by all parties that the appellee Eastco never was a resident of
Pennsylvania, the district court concluded that the statute was not tolled as
to Eastco.2 The court also concluded that the limitations period was not
tolled as to International Harvester because it has always been subject to
the jurisdiction of Pennsylvania and therefore never became a nonresident within the meaning of that statute.
The appellants seek reversal of the judgment below on two grounds. First,
they argue that the district court erred in dismissing their warranty and
strict liability actions against Eastco because its finding that the
transaction between the appellant and Eastco was predominately a service
contract was contrary to the facts and proofs in the record. Second, they
contend that the district court erred in holding that New York's borrowing
statute required the application of Pennsylvania's two-year statute of
limitations, therefore barring plaintiffs' claims. Their principal contention
is that the court below should have followed the holding of Martin v.
Julius Dierck Equipment Co., 52 App.Div.2d 463, 384 N.Y.S.2d 479 (2d
Dept. 1976), aff'd on other grounds, 43 N.Y.2d 583, 403 N.Y.S.2d 185,

374 N.E.2d 97 (1978), which applied the "grouping of contacts" or "center

of gravity" approach governing substantive choice of law questions to
determine where a cause of action accrues for purposes of the borrowing
statute. This approach would require the district court to conclude that the
action accrued in New York because, in appellants' view, New York has
the most significant interest in and contact with the subject matter of this
litigation. Appellants argue that since the action accrued in New York the
borrowing statute did not apply and New York's three-year limitations
period would govern these actions.
I. Dismissal of the Warranty and Strict Liability Actions
Against Eastco
The appellants argue that the court below erred in dismissing the warranty
and strict liability actions against Eastco on the grounds that the
transaction with Eastco was predominately a service contract, not a sale of
goods such as is required to sustain such an action. They contend that the
district court erred in its finding of fact concerning the character of the
transaction, not that the court made any mistake in the legal standards it
applied.
The court below clearly applied the proper rules of law in its analysis of
the warranty and strict liability actions against Eastco. Judge Mishler held
that both New York and Pennsylvania will not sustain a claim founded in
implied warranty or strict liability if the transaction was predominately a
service contract with only an incidental transfer of goods.
The law of New York on the question of whether a strict products liability
action can be sustained in the case of a hybrid sales and service contract is
well established. The leading case of Perlmutter v. Beth David Hospital,
308 N.Y. 100, 123 N.E.2d 792 (1954), established the principle that strict
liability actions cannot be maintained where the transaction is
predominately a service contract despite the existence of elements of a
sale. Id. The appellants argue that the Perlmutter rationale is limited to the
facts of that case which involved the sale of blood as part of the provision
of health services by a hospital. However, Perlmutter has been extended
by the New York courts to all transactions where service predominates.
See Milau Associates v. North Ave. Development Corp., 42 N.Y.2d 482,
398 N.Y.S.2d 882, 368 N.E.2d 1247 (1977). Although "(i)n a proper case,
a hybrid service-sale transaction can give rise to a cause of action for
breach of warranty or strict products liability if the sales aspect of the
transaction predominates and the service aspect is merely incidental,"

Nickel v. Hyster Company, 97 Misc.2d 770, 773, 412 N.Y.S.2d 273, 276
(Sup.Ct., Suffolk Co. 1978), such a result has only been seen in cases
where a retail seller provided some incidental services in connection with
the sale, Jackson v. Melvey, 56 A.D.2d 836, 392 N.Y.S.2d 312, 314 (2d
Dept. 1977). Judicial consideration of this issue has been analyzed in the
same manner in Pennsylvania. See Berkebile v. Brantly Helicopter Corp.,
462 Pa. 83, 337 A.2d 893, 898 (1975) (doctrine of strict liability applies
only to sellers of defective products); DeMatteo v. White, 233 Pa.Super.
339, 336 A.2d 355, 358 (1975) (contract for construction of home does
not constitute a sale of goods despite incidental furnishing of materials);
York Heating & Ventilating Co. v. Flannery, 87 Pa.Super. 19 (1926).
In the instant case, the district court found "the contract for the repair of
the truck to be a service contract despite the incidental transfer of property
used in rendering the service." The appellants contend that this finding is
in error because the facts and proofs set forth in the record establish that
the transaction was predominately a sales contract. They cite three factors
to support their position that the contract between Edward Stafford and
Eastco was predominately one for the sale of goods: (1) the charge for
labor was less than the charge for parts; (2) the purpose of the transaction
was to replace the steering mechanism under the recall program instituted
by the manufacturer; and (3) Eastco had the status of a franchisee of the
manufacturer and was acting as the manufacturer's agent when installing
the new steering mechanism.
This court, in reviewing a finding of fact made by the court below, is
bound by the rule that "(f)indings of fact shall not be set aside unless
clearly erroneous." Fed.R.Civ.P. 52(a). The burden is upon the appellants
to demonstrate that the district court's finding is clearly wrong. Zovluck v.
United States, 448 F.2d 339 (2d Cir. 1971), cert. denied, 405 U.S. 1043,
92 S.Ct. 1327, 31 L.Ed.2d 585 (1972).
The district court's finding that the transaction between Edward Stafford
and Eastco was predominately a service contract is amply supported by
the evidence in the record. Mr. Stafford himself described his arrangement
with Eastco as having the purpose of repairing the truck. At the time he
arranged to have the truck towed to Eastco he had no knowledge that the
steering mechanism may have been under recall by International
Harvester, the manufacturer, and, therefore, could not have gone to Eastco
with the purpose of having the recall replacement made by an agent of the
manufacturer. As explained by the New York Court of Appeals, the
underlying nature of a hybrid transaction is determined by reference to the
purpose with which the customer contracted with the defendant:

Viewed in its entirety, we held in Perlmutter that the transaction could not
be characterized in part or in its underlying nature as one for the sale of
goods, for Mrs. Perlmutter had checked into the hospital to restore her
health, not to purchase blood.
Milau Associates v. North Ave. Development Corp., 398 N.Y.S.2d 882,
368 N.E.2d at 1249. In this case Mr. Stafford had his truck towed to
Eastco in order to repair the damage caused by the accident which
occurred on November 5, 1974 in New York. The underlying nature of the
transaction was therefore that of a contract for repairs and no error can be
found in the district court's finding to that effect.
The dismissal of the appellants' warranty and strict liability causes of
action against Eastco is therefore affirmed.
II. The Statute of Limitations Issue
Since jurisdiction in the court below was based on diversity of citizenship,
it was bound to apply the substantive law of New York, Erie Railroad Co.
v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), including
the applicable New York conflict of laws rules, Klaxon Co. v. Stentor
Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).
Under New York law the statute of limitations is considered procedural
since it goes to the remedy, and New York will apply its own statute of
limitations even though the injury which gave rise to the action occurs in
another state. Martin v. Julius Dierck Equipment Co., 43 N.Y.2d 583, 588,
403 N.Y.S.2d 185, 187, 374 N.E.2d 97, 99 (1978). Consequently, in
determining whether the claims in this action were time barred, the court
below was required to determine and apply the proper New York statutes
as they have been authoritatively construed by the New York courts.
Guaranty Trust Co. v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079
(1945).
Although this suit was commenced in New York within New York's threeyear period of limitation for causes of action seeking damages for
personal injuries, New York's limitations of actions laws are supplemented
by a borrowing statute which provides that an action cannot be maintained
if it is barred by the statute of limitations of the state "where the cause of
action accrued." N.Y.C.P.L.R. 202.3 Since the plaintiffs in this action
are non-residents of New York, the borrowing statute will apply if (1) the
cause of action accrued outside of New York and (2) the limitations
period of the jurisdiction in which the cause of action accrued would bar
the action. The court below, therefore, was required to consider this

borrowing statute to determine if the New York Court of Appeals would

apply it to bar this lawsuit.
The federal courts, when applying state law in their exercise of diversity
jurisdiction, sit as another court of the state. Guaranty Trust Co. v. York,
326 U.S. at 108, 65 S.Ct. at 1469. This does not mean, however, that the
federal courts must rigidly or mechanically follow every state court
pronouncement. Strubbe v. Sonnenschein, 299 F.2d 185, 188-89 (2d Cir.
1962). A federal court must, when presented with an absence of
controlling state authority, "make an estimate of what the state's highest
court would rule to be its law." Bailey Employment System, Inc. v. Hahn,
655 F.2d 473, 477 (2d Cir. 1981). (quoting Cunningham v. The Equitable
Life Assurance Society of the United States, 652 F.2d 306, 308 (2d Cir.
1981)). The Supreme Court has recognized that the federal courts must on
occasion play this role:
One of the difficulties, of course, resulting from Erie R. Co. v. Tompkins,
is that it is not always easy and sometimes difficult to ascertain what the
governing state law is. The essence of the doctrine of that case is that the
difficulties of ascertaining state law are fraught with less mischief than
disregard of the basic nature of diversity jurisdiction, namely, the
enforcement of state-created rights and state policies going to the heart of
those rights....
As long as there is diversity jurisdiction, "estimates" are necessarily often
all that federal courts can make in ascertaining what the state court would
rule to be its law.
Bernhardt v. Polygraphic Company of America, Inc., 350 U.S. 198, 20809, 76 S.Ct. 273, 279, 100 L.Ed. 199 (1956) (Frankfurter, J., concurring).

A. Existing Case Law

1

Following the analysis of existing federal and New York case law, Judge
Mishler defined the issue as how to determine where a cause of action accrues
for purposes of applying the borrowing statute. The problem, under this view,
is whether to apply the traditional conflicts rule that a cause of action in tort
accrues at the place of injury or the modern conflicts approach adopted by the
New York Court of Appeals in Babcock v. Jackson, 12 N.Y.2d 473, 240
N.Y.S.2d 743, 191 N.E.2d 279 (1963). The Babcock approach focuses on
which jurisdiction had the most significant interest in, or contact with, the
subject matter of the litigation. Id.

Judge Mishler was confronted with a split of federal and state authority on this
issue. The federal courts have specifically framed the issue as requiring a
choice between these two tests. See Arneil v. Ramsey, 550 F.2d 774 (2d Cir.
1977); Gluck v. Amicor, Inc., 487 F.Supp. 608 (S.D.N.Y.1980); Haberman v.
Tobin, 466 F.Supp. 447 (S.D.N.Y.1979); Posner v. Merrill Lynch, Pierce,
Fenner & Smith, 469 F.Supp. 972 (S.D.N.Y.1979); State Teachers Retirement
Board v. Fluor Corp., 84 F.R.D. 38 (S.D.N.Y.1979); Bache Halsey Stuart, Inc.
v. Namm, 446 F.Supp. 692 (S.D.N.Y.1978); Natural Resources Corp. v. Royal
Resources Corp., 427 F.Supp. 880 (S.D.N.Y.1977). One group of cases follows
Arneil v. Ramsey, 550 F.2d 774 (2d Cir. 1977), and Sack v. Low, 478 F.2d 360
(2d Cir. 1973), which are read as establishing the rule that the place of injury
determines where a cause of action accrues. E. g., Bache Halsey Stuart, Inc. v.
Namm, 446 F.Supp. at 696. Another set of federal cases holds that the grouping
of contacts approach controls the question. Haberman v. Tobin, 466 F.Supp.
447 (dictum); State Teachers Retirement Board v. Fluor Corp., 84 F.R.D. 38
(dictum); Natural Resources Corp. v. Royal Resources Corp., 427 F.Supp. 880.

The New York cases, however, have not squarely addressed the problem of
whether a "place of injury" or a "grouping of contacts" approach should be
applied to determine where a cause of action accrues for purposes of the
borrowing statute. The question has arisen in a context where the New York
courts were primarily concerned with the separate issue of whether, for
purposes of the borrowing statute, a breach of warranty claim should be
considered to accrue separately from a strict liability claim concerning the same
events. E. g., Martin v. Julius Dierck Equipment Co., 384 N.Y.S.2d at 481-82
(2d Dept. 1976). The First Department of the Appellate Division of the New
York Supreme Court affirmed a lower court holding that a warranty cause of
action accrued in New York, the state where the product was manufactured,
while reversing on a related negligence cause of action, holding that it accrued
in the state where the injury occurred. Myers v. Dunlop Tire & Rubber Corp.,
40 A.D.2d 599, 335 N.Y.S.2d 961, 962 (1st Dept. 1972) (as described in Martin
v. Julius Dierck Equipment Co., 384 N.Y.S.2d at 481-82). The Second
Department declined to follow Myers, holding that a warranty claim should be
considered, for purposes of the borrowing statute, to be equivalent to the strict
liability claim and to accrue at the same time and place. Martin v. Julius Dierck
Equipment Co., 384 N.Y.S.2d at 482. The Second Department then applied a
"grouping of contacts" approach to determine where the action accrued:

4 court should first ascertain the underlying nature of plaintiff's action and then
(A)
decide which area or locality has the primary interest in the matters in dispute. To
put it succinctly, the test requires us to determine what the essence of the action is
and which jurisdiction has the most significant contacts with the issues before the

court (cf. Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279;
Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99).
5

Martin v. Julius Dierck Equipment Co., 384 N.Y.S.2d at 482.

The New York Court of Appeals affirmed the Second Department's decision in
Martin but addressed only the question of whether the warranty action should
be considered to accrue separately from the strict liability and negligence
causes of action. Martin v. Julius Dierck Equipment Co., 403 N.Y.S.2d at 188,
374 N.E.2d 97. The Court of Appeals did not discuss the Appellate Division's
second holding that the grouping of contacts test determined where the action
accrued.4 None of these New York cases analyze in any depth the question of
whether "place of injury" or a "grouping of contacts" should determine where a
cause of action accrues for purposes of applying the borrowing statute. The
Myers court simply assumed that the place of injury governed, Myers, 335
N.Y.S.2d at 962, and the Appellate Division's opinion in Martin only stated its
conclusion that a "grouping of contacts" approach was appropriate without
explaining its rationale. Martin, 384 N.Y.S.2d at 482.

The district court below concluded that since the New York intermediate courts
were divided on the question and the New York Court of Appeals had avoided
ruling on it when directly presented with an opportunity, it was most
appropriate for a federal court applying New York law in its diversity
jurisdiction to take a conservative position and apply the traditional place of
injury test. Judge Mishler relied upon this court's decision in Arneil v. Ramsey,
550 F.2d 774 (2d Cir. 1977), stressing that its rationale was based upon the
underlying policy of the borrowing statute "to protect New York residentdefendants from suits in New York that would be barred by shorter statutes of
limitations in other states where non-resident-plaintiffs could have brought
suit." Id. at 779-80 (quoting Sack v. Low, 478 F.2d at 367).

B. The Meaning of "Cause of Action" in the Borrowing Statute

Judge Mishler's conclusion that the reasoning of Arneil v. Ramsey should be

followed was sound as far as it went. Unfortunately, perhaps because the issue
was not stressed in the court below, the significance of the specific facts
presented by the case at bar were not considered. The result of holding that
Pennsylvania's limitations period applies under the borrowing statute is to bar
the appellants' action against Eastco despite the fact that all the parties concede
that Eastco has never had sufficient contact with Pennsylvania to permit it to be
sued in that state.

10

This case presents an issue, therefore, that was not directly addressed by the
court below and has not been definitively resolved by the New York Court of
Appeals. The question is not simply where the cause of action accrued for
purposes of New York's borrowing statute but whether a cause of action
accrued in Pennsylvania for purposes of applying New York's borrowing
statute. "A 'cause of action' may mean one thing for one purpose and something
different for another." United States v. Memphis Cotton Oil Co., 288 U.S. 62,
67-68, 53 S.Ct. 278, 280, 77 L.Ed. 619 (1933). We must consider whether a
New York court would hold that a cause of action accrues (for purposes of
applying its borrowing statute) in a jurisdiction which could not exercise
jurisdiction over it.5

11

The New York courts have not given this question much attention. The cases
have generally assumed that the foreign jurisdiction in which "the cause of
action accrued" was able to entertain the cause of action. See, e. g., Cellura v.
Cellura, 24 A.D.2d 59, 263 N.Y.S.2d 843 (4th Dept. 1965); Daigle v. Leavitt,
54 Misc.2d 651, 283 N.Y.S.2d 328 (Sup.Ct., Rockland Co. 1967).6 There is
some language in the opinion of the New York Court of Appeals in the Martin
case which could be read to indicate that it is not relevant whether personal
jurisdiction over the defendants is available in the state whose limitations
period is applied under the borrowing statute.7 Martin v. Julius Dierck
Equipment Co., 403 N.Y.S.2d at 190, 374 N.E.2d 97. The court's statements,
however, were made in the context of a discussion regarding whether the
foreign jurisdiction's tolling statute prevented the limitations period from
running. The court was not squarely addressing the question of what effect a
possible lack of jurisdiction over the defendant would have on the question of
whether a cause of action accrued for purposes of applying the borrowing
statute. At another place in the same opinion the New York Court of Appeals
uses language which strongly suggests that were it considering this question it
would hold that an action cannot accrue unless personal jurisdiction over the
defendant is obtainable:

12
When
it (the borrowing statute, CPLR 202) speaks of "accrual" of a cause of action,
it must logically refer to a cause of action upon which a lawsuit may be brought....
13

Id. 403 N.Y.S.2d at 189, 374 N.E.2d 97. Although the immediate occasion of
the reference was to the time when a cause of action began, the statement
reflects the New York court's perceptive awareness that application of New
York's borrowing statute depends upon the presence of its key ingredient, "a
cause of action upon which a lawsuit may be brought." Id.

14

We are not bound by any decisive construction of the state court on this point.

New York's highest court has not definitively spoken on the issue of whether a
cause of action can accrue for borrowing purposes in a jurisdiction where the
defendant is not amenable to suit. In attempting to estimate what the New York
Court of Appeals would hold were it directly confronted with this issue, a
federal court must keep in mind the basic purpose of its diversity jurisdiction,
i.e. "the enforcement of state-created rights and state policies going to the heart
of those rights." Bernhardt v. Polygraphic Company of America, Inc., 350 U.S.
at 208, 76 S.Ct. at 279 (Frankfurter, J., concurring) (emphasis added). The
generally recognized purpose of borrowing statutes is to prevent forum
shopping by plaintiffs who may be barred by the limitations period of one
possible forum but not that of another. David H. Vernon, "Statutes of
Limitations In the Conflict of Laws: Borrowing Statutes," 32 Rocky
Mtn.L.Rev. 287, 297 (1960). As to the New York statute, in reasoned dictum
we have recognized that its purpose is:
15 protect New York resident-defendants from suits in New York that would be
to
barred by shorter statutes of limitations in other states where non-resident-plaintiffs
could have brought suit.
16

Sack v. Low, 478 F.2d 360, 367 (2d Cir. 1973) (emphasis added). We reiterated
this view in Arneil v. Ramsey, 550 F.2d at 779-80, when we emphasized by
repeating:

17 the extent New York has a concern in the case before us ... it is in the application
To
of its borrowing statute, and that is
18 protect New York resident-defendants from suits in New York that would be
to
barred by shorter statutes of limitations in other states where non-resident-plaintiffs
could have brought suit.
Sack v. Low, (478 F.2d) at 367.
19
20

Accord, Daigle v. Leavitt, 54 Misc.2d 651, 283 N.Y.S.2d 328 (Sup.Ct.,

Rockland Co. 1967).

21

We believe that New York's borrowing statute would be read as applying only
to statutes of limitations of states where "suit could have been brought" in order
to effectuate the purpose which the statute was designed to serve. Other courts
have also taken this approach and held that for purposes of construing
borrowing legislation a claim accrues only where a defendant is amenable to
process. E.g., Pattridge v. Palmer, 201 Minn. 387, 277 N.W. 18, 19 (1937);
Strong v. Lewis, 204 Ill. 35, 68 N.E. 556 (1903). As the Supreme Court of

Illinois stated:
22 words "when a cause of action has arisen," ... should be construed as meaning
The
when jurisdiction exists in the courts of a state to adjudicate between the parties
upon the particular cause of action, without regard to the place where the cause of
action had its origin.
23

Id. 68 N.E. at 556. This view recognizes that the existence of jurisdiction over a
defendant is essential to assure a rational relationship between the litigation and
the statute of limitations being applied. As one commentator has concluded, "
(i)f a defendant has never been subject to service in a jurisdiction, it seems
unrealistic to permit its law to control the disposition of the limitation question
elsewhere." 32 Rocky Mtn.L.Rev. at 326.

24

The concept that a statute of limitations does not come into operation except
against a suit which can be brought is not a late development. Even without a
borrowing statute to consider, the same principle has been applied to statutes of
limitations. In Anderson v. Gailey, 33 F.2d 589 (N.D.Ga.1929), the court held
that where suit is a legal impossibility, statutes of limitations do not come into
operation.

25
Where
suit is a legal impossibility, judicial exceptions to the statute are implied, as
where there is no competent plaintiff or defendant or no forum to sue in.
26

Id. at 592. In predicting that the New York Court of Appeals would construe a
"cause of action" in its borrowing statute to mean a cause of action where suit
could have been brought, we would be heeding the often noted admonition of
Judge Learned Hand in Brooklyn Nat. Corp. v. Commissioner of Internal
Revenue, 157 F.2d 450, 451 (2d Cir.), cert. denied, 329 U.S. 733, 67 S.Ct. 96,
91 L.Ed. 634 (1946), that "there is often no surer way to misconceive the
meaning of a statute or any other writing than to construe it verbally...." Insofar
as the purpose of the borrowing statute is not to protect its residents from stale
claims (as to which New York's own statute of limitations affords adequate
protection), but to prevent a plaintiff from forum shopping, it makes no sense at
all to apply the shorter limitation of a state where the defendant could not have
been sued. 8

27

This court has, in dicta, implicitly endorsed this view although it has never
before been directly confronted with the issue of how a defendant's amenability
to suit affects the question of the applicability of New York's borrowing statute.
In Arneil v. Ramsey, 550 F.2d 774 (2d Cir. 1977), we held, in a securities fraud
action, that the statute of limitations of Washington, the state of the plaintiffs'

residence, should be applied under New York's borrowing statute. Id. at 779.
The rationale was that Washington was the state where the economic impact of
the fraud was felt, whereas New York's only interest in the case was "in the
application of its borrowing statute." Its application raised no problem because
"(p)laintiffs here have demonstrated no reason why these defendants could not
have been sued in Washington other than that Washington's statute of
limitations had already run." Id. at 780.
28

The holding in Arneil, therefore, was premised on the ability of the plaintiff to
have brought suit in the state whose limitations period was applied. Id. We now
explicitly affirm what was implicit in our decision in Arneil : that our prediction
is that New York's Court of Appeals would decide that New York's borrowing
statute does not require the application of the statute of limitations of a
jurisdiction if the cause of action could never have been brought in that
jurisdiction.

29

It is clear that the policies underlying New York's borrowing statute are not
served in any way by applying the limitations period of Pennsylvania to bar a
cause of action which never could have been brought in Pennsylvania. The
main purpose of the borrowing statute is to prevent forum shopping by
plaintiffs. Arneil v. Ramsey, 550 F.2d at 779-80; Daigle v. Leavitt, 283
N.Y.S.2d at 330. The appellants in this case apparently chose to bring their
action in New York, not to avoid the bar of Pennsylvania's shorter limitations
period, but because one of the defendants, Eastco, was not amenable to suit in
any jurisdiction except New York. In such a case the policies underlying New
York's borrowing statute are not implicated and no interest of either New York
or Pennsylvania is served by applying the borrowing statute to bar this action.
We therefore hold that the New York Court of Appeals would decide that a
cause of action cannot accrue for purposes of New York's borrowing statute in
a state which could not exercise jurisdiction over the cause of action.

30

Up to this point we have attempted to avoid confusion by not considering how

Pennsylvania's tolling statute would apply to this action were the borrowing
statute applicable. We hold simply that since the borrowing statute is
inapplicable, Pennsylvania's statute of limitations does not apply at all to the
action against Eastco and, therefore, we do not reach the question of whether it
would have or should have been tolled under Pennsylvania law.9
C. Conclusion

31

The foregoing construction of the borrowing statute requires reversal of the

summary judgment entered below in favor of Eastco. Eastco's contacts with

Pennsylvania are insufficient to provide a basis for personal jurisdiction
consistent with the due process clause. See World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). Since there is
nothing in this record to show that the action against Eastco accrued for
purposes of New York's borrowing statute anywhere other than New York, the
borrowing statute is inapplicable and the action against Eastco is governed by
New York's three-year limitations period. The summary judgment in favor of
Eastco is, therefore, reversed, as the complaint against it was timely since it
was filed within New York's three-year statute of limitations governing injury
to persons or property. See N.Y. C.P.L.R. 214(4), (5).
32

The summary judgment in favor of International Harvester, on the other hand,

presents another question. International Harvester is and always has been
amenable to suit in Pennsylvania as a foreign corporation registered to do
business in that state. There is no reason, therefore, not to apply the borrowing
statute to the action against International Harvester. In so holding we follow the
general rule, recognized in our opinion in Arneil v. Ramsey, that the place of
injury determines where the cause of action accrues.

33

Since International Harvester concedes that it has always been subject to

jurisdiction in Pennsylvania as a foreign corporation registered to do business in
that state and, therefore, has never become a non-resident for purposes of
applying its tolling statute, 10 Pennsylvania's statute of limitations would not be
tolled and would bar the appellants' cause of action against International
Harvester. The order of the district court granting summary judgment against
the plaintiffs and in favor of International Harvester is, therefore, affirmed.11

34

Affirmed in part and reversed in part.

Hon. M. Joseph Blumenfeld, Senior United States District Judge for the
District of Connecticut, sitting by designation

New York's borrowing statute, N.Y. C.P.L.R. 202, provides:

An action based upon a cause of action accruing without the state cannot be
commenced after the expiration of the time limited by the laws of either the
state or the place without the state where the cause of action accrued, except
that where the cause of action accrued in favor of a resident of the state the time
limited by the laws of the state shall apply.

The inapplicability of the borrowing statute to a suit by a citizen of the forum

state has been held not to violate the privileges and immunities clause of Art.
IV, Section 2 of the Constitution. Canadian Northern Railway Co. v. Eggen,
252 U.S. 553, 40 S.Ct. 402, 64 L.Ed. 713 (1920).
2

The tolling statute in effect in Pennsylvania at the time this action came into
being, Act of May 22, 1895, P.L. 112, 1, 12 Pa.C.S.A. 40 (repealed 1978),
has been construed to suspend the running of the limitations period only against
a defendant who, having been a resident of Pennsylvania, leaves the
jurisdiction after a cause of action has accrued against him. Hartmann v. Time,
Inc., 64 F.Supp. 671, 675 (D.Pa.1946), vacated in part & set aside on other
grounds, 166 F.2d 127 (3d Cir. 1947), cert. denied, 334 U.S. 838, 68 S.Ct.
1495, 92 L.Ed. 1763 (1948); Hunter v. Bremer, 256 Pa. 257, 100 A. 809, 812
(1917)

See note 1 supra

The opinion of the New York Court of Appeals in Martin is ambiguous on the
question of the appropriate standard for determining where a cause of action
accrues under the borrowing statute. Martin v. Julius Dierck Equipment Co., 43
N.Y.2d 583, 403 N.Y.S.2d 185, 374 N.E.2d 97. The court appears to approve
the Second Department's "greatest interest in the litigation" test, id. at 187, 374
N.E.2d 97, but at other places in the opinion describes the test as the "place of
injury," id. at 189, 374 N.E.2d 97. The court was not overly concerned with the
issue in Martin because the same result would have been achieved under either
standard. Martin v. Julius Dierck Equipment Co., 384 N.Y.S.2d at 482 (2d
Dept. 1976)

It should be noted that a cause of action may be considered as "accruing," for

purposes of New York's borrowing statute, in a state different from the one
whose substantive law would determine liability. George v. Douglas Aircraft
Co., Inc., 332 F.2d 73, 78 (2d Cir. 1964). Accord, Arneil v. Ramsey, 550 F.2d
at 779

Myers v. Dunlop Tire & Rubber Corp., 40 A.D.2d 599, 335 N.Y.S.2d 961 (1st
Dept. 1972), applied the limitations period of a state arguably unable to exercise
jurisdiction over the cause of action. In Myers a New York manufacturer was
sued on a theory of negligence for damages arising out of an accident occurring
in Kentucky. The Appellate Division of New York's Supreme Court applied
Kentucky's statute of limitations under New York's borrowing statute because it
concluded that the cause of action accrued in Kentucky, the place where the
injury occurred. The court did not analyze the issue nor discuss the question of
whether Kentucky could have asserted jurisdiction over the defendant

The New York Court of Appeals stated:

The question remains, however, whether Virginia's Statute of Limitations was
tolled because of the inability of plaintiff to secure jurisdiction over defendants
in Virginia. In this regard, we find it unnecessary to decide whether defendants
engaged in a "persistent course of conduct" or derived "substantial revenue
from goods used or consumed or services rendered in (Virginia)", thus
rendering themselves amenable to jurisdiction under Virginia's longarm statute.
(Va.Code (1950), 8-81.2.) Section 8-33 of the Virginia Code, the tolling
provision applicable in the present case, provided for the tolling of the Statute
of Limitations during the absence of a defendant from Virginia only if the
defendant had resided in Virginia before the cause of action accrued against
him. Since defendants were not residents of Virginia before plaintiff's cause of
action accrued against them, Virginia's two year Statute of Limitations could
not have been tolled. Not having been residents prior to the accrual of plaintiff's
causes of action, defendants' absence from Virginia is irrelevant.
Martin v. Julius Dierck Equipment Co., 403 N.Y.S.2d at 190, 374 N.E.2d 97
(footnote omitted).

If the plaintiff had initiated suit in Pennsylvania, his case would never have
reached the stage where the defendant would plead Pennsylvania's statute of
limitations as a defense. Pennsylvania courts would have no power to exercise
any jurisdiction over the defendant. World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). In such a
situation the remedial purpose of the borrowing statute to prevent forum
shopping is not served by applying the limitations period of Pennsylvania, a
state which never could have entertained the action

Because we hold that New York's borrowing statute does not operate to make
Pennsylvania's limitation period applicable to the action against Eastco we need
not reach the question of whether Pennsylvania's statute of limitations would be
tolled against such a permanently absent defendant. Consideration of this issue,
however, illustrates the fact that no coherent purpose is served by applying the
borrowing statute to a situation such as is presented by the case at bar
The tolling statute in effect in Pennsylvania at the time this cause of action
came into being has been construed to apply only to a defendant who leaves the
jurisdiction after the cause of action has accrued. Hartmann v. Time, Inc., 64
F.Supp. at 675. See note 2 supra. It does not toll the running of the limitations
period against a defendant who has never been present in the state. Id.
This construction, based solely on a literal reading of the statute's language,
violates Judge Learned Hand's admonition that "interpretation is the art of

proliferating a purpose which is meant to cover many occasions so that it shall

be best realized upon the occasion in question." Brooklyn Nat. Corp. v.
Commissioner of Internal Revenue, 157 F.2d at 451. The purpose of tolling a
limitations period during a defendant's absence is to save the plaintiff's cause of
action where personal service on the defendant cannot be had. E. g. 17
A.L.R.2d 502, 504 (1951). In recognition that such tolling statutes are designed
to deal with the problem of defendants beyond the reach of a state's process,
many courts have construed the term non-resident in such statutes to mean only
defendants not amenable to service within the jurisdiction. E.g. 55 A.L.R.2d
1158, 1163; Hunter v. Bremer, 100 A. at 811-12. The Pennsylvania Supreme
Court has acknowledged that this was the purpose of the tolling statute at issue
here:
(T)he Act of 1895, supra, contemplates simply a residence of such permanency
that the person in question may be found here and served with ordinary legal
process at any time....
Id. at 812.
The Pennsylvania legislature has recently acknowledged that a defendant's
presence in the state at the time an action accrues is not relevant to the purposes
of such a tolling statute. It has replaced this archaic statute with a modern one
which tolls the running of the limitations period against any defendant who is
absent from the jurisdiction and not amenable to service of process at the time
the cause of action accrues regardless of whether he had ever been present in
the state prior to that time. Act of July 9, 1976, P.L. 586, No. 142, 2, eff. June
27, 1978, 42 Pa.Stat.Ann. 5532(a), 5532(b)(3).
If we combine Pennsylvania's outmoded tolling statute with a holding that New
York's borrowing statute requires the application of Pennsylvania law despite
the fact that the defendant has never been amenable to suit in Pennsylvania, we
confront an anomalous result. Although Pennsylvania has in effect said that as
to this defendant the plaintiff must go elsewhere to preserve his cause of action,
we would nevertheless be holding that New York law requires us to apply
Pennsylvania's statute of limitations. This circular result, which makes no sense
and serves no coherent purpose, thus strengthens our conclusion that New
York's borrowing statute would be construed to bar plaintiffs from suit in its
courts by shorter statutes of limitation of other states only if the defendants
could have been sued there.
10

See page 145 supra

11

We do not consider whether Eastco would have a third party claim against
International Harvester for indemnification or contribution